Property Managers as "Operators" of Superfund Sites

"No good deed goes unpunished." - Everyone Who Has Ever Done a Good Deed

There are probably fewer jobs more thankless than being a property manager. Anything that goes wrong is your fault and you probably can't fix things fast enough to please anyone. Adding insult to injury now is a judicial opinion in the case Scarlett & Associates, Inc. v. Briarcliff Center Partners, L.L.C. from a federal district court in Georgia which suggests that property managers can be "operators" under the Comprehensive Environmental Response Compensation and Liability ACT (CERCLA), better known as the Superfund Act.

In this case, a dry cleaning business operated continuously at a Georgia strip mall from 1986 to 2007. During that time, tetrachloroethene (PCE), commonly used by dry cleaners, contaminated the property. The Georgia Environmental Protection Division (GEPD) responded to site conditions and required the property's owners, tenant of the strip mall and other responsible parties to investigate and clean up the contamination.

The primary tenant of the strip mall retained a property manager, which managed the property until 1997. The property manager had no control over which tenants were allowed to lease space and had no control over any tenant's hazardous materials operations. The property manager collected rent, maintained common areas, pay bills, and send excess revenues to the primary tenant. Yet, the primary tenant sued its former property manager to contribute to the costs of investigation and cleanup, arguing in part that the property manager was an "operator" under CERCLA.

Under CERCLA, there are a variety of potentially responsible parties for the costs of investigation and cleanup, including owners of properties and "operators" of properties. The term "operators" is a defined term under the statute and what it means has been litigated almost since the time CERCLA was passed in 1980. In short, it basically means that people who have the ability to control or have actual control over property, even if they have no ownership interest, can be responsible for the costs of investigating and cleaning up contaminated properties. CERCLA also provides that people who have paid to investigate and clean up properties may sue other people who may be responsible to contribute to those costs, which is what the primary tenant did in this case.

The property manager filed a motion for summary judgment arguing that as a matter of law, it cannot be responsible for the costs of investigation and cleaning up the property, as it did not meet the definition of "operator". In support, the property manager demonstrated that it had no control of any of the dry cleaning operations, and in general could not control individual tenant operations and could not evict tenants. However, the primary tenant countered that the property manager was generally responsible for managing and maintaining the strip mall and for making sure that the strip mall was in compliance with all laws, rules and regulations. The court agreed with the primary tenant, finding that a jury could find based on these facts that the property manager met the definition of "operator" under CERCLA. [The court also ruled that the property manager could be an "operator" of a hazardous waste site under the Resource Conservation and Recovery Act (RCRA), even though it had not been on the property since 1997, which is a very tenuous legal conclusion based on precedent from other jurisdictions.]

What does this mean to the average property manager? First, it is important to remember that not all courts share the Georgie court's view. Next, losing a motion for summary judgment is not the same as losing the case, as a jury could easily find that the property manager did not meet the definition of "operator". All the court determined was that there was a genuine issue of material fact (a legal phrase that means "it could go either way") for a jury to rule, so the court could not. Finally, it is important for property managers to review their contracts, what it requires of them and what responsibilities are theirs, with their legal counsel to make sure that they are protected from a suit like one filed in Georgia or what they can do to protect themselves.